After Earnings, Is Schwab Stock a Buy, a Sell, or Fairly Valued?

Charles Schwab released its fourth-quarter earnings report on Jan. 21. Here’s Morningstar’s take on Schwab’s earnings and stock.

Key Morningstar Metrics for Charles Schwab

• Fair Value Estimate: $111.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Charles Schwab’s Q4 Earnings

Charles Schwab reported fourth-quarter 2025 earnings results, generating outstanding 22% annual revenue growth on the back of expanding net interest margins, 18% annual growth in client assets to $11.90 trillion, and surprisingly strong customer trading activity.

Why it matters: We saw little in quarterly results that would change our constructive thesis for Charles Schwab. The one knock, if a largely exogenous one, is a still-low client cash allocation at 9.6% of average assets, well below the 11.4% average over the past decade. This curbs near-term balance sheet growth prospects at Charles Schwab bank.

• We now expect this dynamic to persist through 2026, with a strong market backdrop and still-high interest rates discouraging investors from sitting on the sidelines, holding cash. This delays but does not undermine our expectation for Schwab to generate low-teens compound annual percentage growth in earning assets (13%-14%) and midteens growth in net interest income (14%-15%) over the decade to come.
• Beyond the quarterly results, we’re encouraged by improvements across the gamut of Schwab services, from strong lending growth among wealth clients to swelling interest in Schwab Managed Portfolios (36% annual growth in inflows) to progress toward newer initiatives like spot cryptocurrency trading and expansion of alternative asset access with the pending acquisition of Forge Global.

The bottom line: At current valuations, Schwab looks fairly priced, trading at about a 7% discount to our $111 fair value estimate. That said, it’s a high-quality, wide-moat name in a Financial Services sector that doesn’t otherwise provide tons of attractive value at the moment, at least based on our bottom-up estimates.

• For its part, Schwab continues to fire across all cylinders, expecting to accelerate net new assets on its platform in 2026 to 5%, if at the lower end of its 5% to 7% long-term guidance, looks set to generate roughly 10% revenue growth in the year to come, and should continue to enjoy increasing profitability as it maintains discipline over its expense growth.
• While the firm is sensitive to macroeconomic risks—asset price levels, interest rates, investor risk appetite, and the volume of customer cash balances, which respond to all of those—the overarching narrative at Schwab remains overwhelmingly positive.
• Our Schwab forecasts contemplate market appreciation of 8.3% for a 60-30-10 portfolio, two Federal Funds interest rate cuts, and a 3.3% decline in daily average revenue trades, so investors can mock our forecasts up or down accordingly based on their own expectations.

Fair Value Estimate for Charles Schwab

With its 3-star rating, we believe Schwab stock is fairly valued compared with our long-term fair value estimate of $111. Our through-the-cycle net interest margin forecast is 2.9%; it assumes a 10-year US Treasury yield of 4.5% and a federal-funds rate of 2.5%. We take an optimistic view of the firm’s ability to grow its balance sheet, projecting Charles Schwab Bank to approach $1 trillion in deposits within a decade, or roughly 3.5%-4.0% of projected US retail deposits in that year. This outlook could change if the firm takes a more proactive approach to using third-party sweep arrangements, although we view this as unlikely in a higher interest rate environment.

While our total revenue growth forecasts are tempered by a conservative outlook for asset management revenue, with expected growth of just 3.2% annually, balance sheet growth is more critical, given the larger share of revenue tied to net interest income than to asset management sales. Our consolidated asset management take rate declines from 0.27% in 2025 to a forecast 0.21% in 2035, consistent with our forecasts for traditional asset managers overall.

Read more about Charles Schwab’s fair value estimate.

Economic Moat Rating

We believe Schwab has a wide economic moat, rooted in a durable cost advantage that we expect to persist for at least the next two decades. Our view is corroborated by an average annual return on tangible equity of 21% over the past decade, comfortably exceeding the firm’s 9% cost of equity. With $11.9 trillion in client assets at the end of 2025 representing midteens market share in the US, the firm is one of a handful of financial-services operators that we expect to emerge as long-term winners in an industry that continues to consolidate amid fee compression and customer expectations for higher service levels at a lower cost.

Read more about Charles Schwab’s economic moat.

Financial Strength

We view Schwab’s financial position as strong. The firm is well capitalized, targeting a Tier 1 leverage ratio of 6.75%-7.00%, comfortably ahead of the 5.00% threshold for well-capitalized banks and the minimum 4.00% regulatory requirement. Near-term debt maturities at the corporate level are modest and should be comfortably serviceable with cash flow from operations. Further, the firm maintains access to a handful of liquidity backstops, including a $5 billion commercial paper authorization, Federal Home Loan Bank borrowing capacity, repurchase agreements, credit lines with third-party banks, a standing shelf registration with the SEC, and access to the Federal Reserve borrowing window.

Schwab retains a substantial share of its earnings to support balance sheet growth, particularly during periods of deposit accumulation. As a result, its long-term dividend payout target of 20%-30% and total payout ratio of roughly 60% over the past decade are behind those of many peers. We expect this to gradually increase over time, but note that elevated share repurchases are unlikely during periods of elevated balance sheet growth. Over the very long term, we expect the firm’s total payout ratio to increase as its balance sheet growth slows.

Read more about Charles Schwab’s financial strength.

Risk and Uncertainty

We assign Schwab a Medium Uncertainty Rating, reflecting both our quantitative model and our qualitative assessment of the firm’s risk profile. In our view, Schwab’s principal risk exposure stems from interest rate sensitivity, with secondary exposures to customer cash sorting, equity market levels, customer trading activity, and the regulatory environment.

Like many financial-services firms, Schwab is sensitive to interest rate risk, with a 25-basis-point federal-funds rate cut corresponding to a $250 million-$300 million reduction to net interest revenue, or roughly 2%-3% of 2025 net interest income. As a historically asset-sensitive institution, Schwab faces falling loan yields when interest rates decline. The firm has, at times, significant exposure to mortgage-backed securities prepayment risk, driving faster repricing at lower interest rates than portfolio duration would suggest during periods of declining rates.

The only material environmental, social, and governance risk we identify for Schwab ties to the potential for litigation or regulatory change regarding the firm’s cash sweep practices. While potentially financially material, we view these risks as limited, considering historical precedent and the lack of fiduciary responsibility at Schwab’s brokerage segment.

Read more about Charles Schwab’s risk and uncertainty.

SCHW Bulls Say

• Schwab could continue to drive organic asset growth with expansion into alternative investments, expansion of lending products, and similar platform investments over time.
• Stronger-than-expected growth in Schwab’s managed-investments portfolio or nascent alternative asset initiatives could more than offset fee rate declines in managed products and a mix shift away from (more profitable) OneSource assets under management.
• Increases in retail trading activity could prove structural rather than cyclical, allowing the more profitable half of Schwab’s business to outgrow its RIA segment.

SCHW Bears Say

• A return to zero-interest-rate policy would pose a material headwind for Schwab’s net interest margin and revenue growth prospects.
• Regulatory changes could meaningfully affect Schwab’s business model. Any that target the firm’s cash sweep model would be particularly painful.
• The firm could struggle to expand its loan book in line with its balance sheet, resulting in a higher mix of mortgage-backed securities or third-party deposit sweeps.

This article was compiled by Rachel Schlueter.